Assessing the Potential of Fixer-Upper Properties

Fixer-upper properties can be a great way to get into the real estate market, especially in a hot, competitive market with high prices. The potential for a great return on investment (ROI) can be enticingly high, but so can the potential for a financial disaster. How can someone interested in this type of investment weigh the costs and benefits to decide if they’re really a good investment?

Prepare a Detailed Plan

Before jumping in, it’s important to have a detailed plan in place. This plan should include budgeting for the purchase, budgeting for the remodel, and budgeting for potential unexpected or additional costs. And, make sure to include a timeline for the process, as renovations often take longer than expected!

Understand Risks

Any real estate investment carries risks, but they’re amplified with fixer-uppers. When investing in a home to remodel, it’s important to understand both the expected costs of renovation, as well as potential surprise costs if something is wrong with the structural integrity of the house. Have a budget for the project ready, and be prepared to increase it if necessary.

Find the Market Value of Property

Before beginning the project, it’s important to find the market value of the property in a finished state. This is often done through a market assessment by a professional. This will provide an indication of the potential profit the property may bring, and what you can expect to do with it should you decide to resell.

Start With the Basics

Once you have an idea of what the property should be worth when complete, begin the process of repairing it from the ground up. Start off with a deep clean, and then work through the major systems of the house. Make sure to replace any broken windows, plumbing, and electrical wiring so the property is safe and functional.

Assess Challenges

While renovations often carry surprises, ones in a fixer-upper can range from difficulties with existing damage to city regulations and zoning ordinances. Also, make sure to budget for potentially unforeseeable expenses that may arise, such as more extensive cleaning, repainting, and the degree of labor needed to repair damage.

Investigate the Neighborhood

It’s also important to check out the neighborhood and surrounding area of the property to make sure it plays a part in the ROI you’re expecting. Check for the condition of the local streets and sidewalks, the quality of the nearby parks, and any potential noise from construction or other businesses.

Research Potential Buyers

The final step in assessing the potential of a fixer-upper is researching potential buyers who might be interested in the completed home. Are there lots of families? Young professionals? Retirees? Understanding who could be interested in your finished product can also play an important role in the process of choosing your renovations.

Hire Professionals

It can also be beneficial to hire professionals to take a closer look at the property before you begin work. Professionals like a home inspector or contractor can provide expert advice and insight into the cost and scope of the project. They can even be a valuable resource during the remodel process, as they may have an idea of ways to reduce the cost of materials and labor.

Conclusion

A fixer-upper can have excellent potential for ROI, but it’s important to do your research and be aware of the risks that come along with real estate investments. Create a detailed plan, understand the risks, find the market value of the property, assess the project’s challenges, and investigate the area and potential buyers before you begin renovating. With careful planning and a little bit of luck, you’ll be able to successfully identify the potential of a fixer-upper and reap the rewards!